« Better in Color? | Main | Progressive Indexing and a $3.7 Trillion Shortfall »
March 15, 2005
Ignoring Social Security's Unfunded Liabilities
Someone needs to explain to Jonathan Chait, guest blogging over at Talking Points Memo, the difference between debt that is on the government's balance sheet (bonds in the Social Security Trust Fund) and debt that is not (unfunded liabilities in the trillions estimated by the Social Security Trustees).
Chait states that:
Private accounts by themselves make the deficit larger.
with the caveat that:
...Bush now proposes to have those who open private accounts accept in return cuts in their guaranteed benefit when they retire years later. Fiscally, this is better than proposing private accounts without explaining how you would pay for them. Yet it would still lead to huge increases in the national debt.
What's missing from this analysis is that the only way this adds to the national debt is if Chait ignores the trillions of unfunded liabilities Social Security has currently built up. Private accounts don't add to this debt, they bring it forward and make it visible for all to see.
For example, if a portion of your payroll taxes is put in a private account, and you invest this money in government bonds, you would receive the same exact amount of benefits as promised under the current system. But what the private accounts do is give you property rights over this portion of your retirement. You own the bonds today and a future Congress can't just take them away by a majority vote.
Chait states "All in all, the most optimistic thing you can say about Bush is that his plan would do no harm," but the exact opposite is true. Under the most pessimistic forecasts of stocks only yielding 3% annually over a 40 year plus time frame, the worst that happens is that benefits remain unchanged. Clearly, we're going to need to do more than just private accounts to shore up a system which would need an additional $3.7 trillion invested today to make it whole over the next 75 years. Means testing benefits or indexing their growth to inflation are some possibilities, but Chait is silent on that matter.
When you look at the post as a whole, which also likens private accounts to "building immense gold statues" of President Bush, it's shocking that this passes as serious analysis from a senior editor from the respected magazine The New Republic. Hopefully the host of Talking Points Memo, Josh Marshall, brings more than the above to his debate tonight with Paul Krugman of the NYT and Michael Tanner of The Cato Institute.
Posted by Peter Mork at March 15, 2005 1:28 PM
Trackback Pings
TrackBack URL for this entry:
http://www.economicswithaface.com/mt/mt-tb.cgi/124/[What is Peter Mork's first name?]
(Please add the answer to the question to the end of the link in order to trackback this entry.)
Listed below are links to weblogs that reference Ignoring Social Security's Unfunded Liabilities:
» Social Security from San Diego Politics
This is a great summation of the Social Security debate. From The New Republic - ..."On a deeper level, though, Bush's line of reasoning is illuminative. Privatizers portray Social Security as a kind of low-performing 401(k) plan. But the program... [Read More]
Tracked on March 15, 2005 3:30 PM
» Another Blog from Social Security Choice
If you haven’t taken a look at Economics With A Face, blogged by Peter Mork, you should. He has a very good post on Jonathan Chait’s recent piece in The New Republic. He also has one noting that Robert Pozen’s... [Read More]
Tracked on March 17, 2005 10:02 AM
Comments
Email Comments Here